ACORN hearing scuttled because proper notice of the proceeding wasn't given

ACORN hearing scuttled because proper notice of the proceeding wasn't given

by
Rebecca Mowbray, The Times-Picayune

Thursday October 02, 2008, 6:28 PM

The initial court hearing over a leadership crisis at the Association of Community Organizations for Reform Now and a possible cover-up of a $1 million embezzlement scandal were scuttled Thursday when it became clear that defendants hadn't been properly served notice of the proceedings.

"It appears that due to hurricanes Ike and or Gustav, there was a service problem," Civil District Court Judge Michael Bagneris said after an hour and forty five minutes of delays.

But Bagneris took the opportunity of having lawyers for most of the stakeholders in the room to craft a solution that could enable ACORN to work through some of its challenges without facing a messy court battle.

ACORN is facing tough times after it was recently revealed that in 1999 and 2000 Dale Rathke, the brother of ACORN founder Wade Rathke, allegedly embezzled $948,507 in faulty credit card charges while working as comptroller of an organization that kept the books for all of the ACORN-affiliated groups around the country. When Wade Rathke was alerted of the fraud in 2001, he set up formal repayment schedule for his brother to repay the debt at a rate of about $30,000 a year. After $214,000 had been repaid on the debt, a California donor stepped in this summer and paid the rest.

But not everyone on the board knew of the arrangements, and when questions were raised by an ACORN donor this spring about the incident, the board smelled a cover-up and asked Rathke to step aside. The situation has since disintegrated into leadership fights at the organization.

ACORN leaders from around the country assembled at the New Orleans court Thursday morning after two members of an interim management committee had filed suit to make sure that financial records at Citizens Consulting Inc., the entity where Dale Rathke worked, would be preserved and made available to the board. In their suit, they also sought to enforce a board resolution directing Wade Rathke to step aside from all ACORN organizations, after he left his post as chief organizer of the group's domestic operations but went to work for ACORN International.

Later, the full 51-member board said the two management committee members had exceeded their authority and sought to have the suit withdrawn.

But Bagneris found a way to resolve the issues without holding a hearing. He secured a pledge from Citizens Consulting that the records would not be destroyed, then instructed the national board to figure out who was authorized to represent the group at its Oct. 17 meeting in New Orleans in the presence of a court reporter. If there's still a dispute over who gets to inspect the records after a Nov. 7 status conference in the case ACORN v. Wade Rathke et al, Bagneris said he'd schedule a hearing.

But as the court helped shape how the inquiries would proceed into the affairs of one of the nation's most prominent social justice groups, many people around town were filled with questions about the embezzlement.

Chief among them:

How could Dale Rathke allegedly spend some $40,000 a month? Why did it take two years for anyone to notice lavish spending on food, travel and entertainment? When Wade Rathke devised the repayment plan, was he trying to protect his brother's interests or the organization's? And while ACORN was dealing with the theft, did the group keep a lower than normal profile, thereby short-changing its supporters on issues of the day?

Another set of questions exists over ACORN's legal liability over the financial scandal and Wade Rathke's handling of it.

Dane Ciolino, a Loyola Law professor with experience in criminal and ethical questions, said that ACORN officers who knew about the embezzlement may have violated their fiduciary responsibilities to the board by failing to report what happened. It is also possible that they may have committed the federal crime of "misprision" if they did anything to conceal the theft, Ciolino said.

But Tania Tetlow, a former federal prosecutor who teaches at Tulane Law School, said that the statute of limitations on most federal crimes is five years, so it may not matter.

Bertha Lewis, a New York ACORN leader who replaced Wade Rathke on an interim basis as chief organizer, said the answers to these questions will become more clear in a few weeks when Sidley Austin LLP, the Chicago-based global law firm that ACORN hired to assess its legal exposure over the handling of the embezzlement, reports to the board. ACORN has hired another law firm to assess its corporate structure and a financial firm to overhaul its accounting controls to ensure it has the credibility to move forward.

Vanessa Gueringer, chair of the Lower 9th Ward chapter of ACORN and a national executive board member, said the most important thing is that her group's work continue. "Work goes on," she said.

Rebecca Mowbray can be reached at rmowbray@timespicayune.com or at (504) 826-3417.